Listed investment vehicles must scale or be ignored

Listed investment companies and trusts are tipped to keep the initial public offering pipeline healthy in early 2018, while the market waits for bigger trading corporations to get off the sidelines.

Pitcher Partners Corporate Finance partner Scott Whiddett, who was responsible for three of Pitcher Partners’ four IPOs that ranked in the top 10 deals of 2017, says interest in listed investment vehicles was being driven in part by FOFA (Future of Financial Advice) changes that had made managed funds a less attractive prospect for advisors.

But he says he expects the number and size of IPOs for investment vehicles to continue to rise, with brokers such as NAB, Morgans and Wilsons most interested in looking to scale-up investment IPOs.

“With a tightening around earning commissions from managed funds, we are seeing more financial advisors looking to other investment options, which in turn means a greater number of listed investment vehicles coming to market,” Mr Whiddett said.

“We are also getting much bigger raisings as financial advisor networks see the best value for their clients being in bigger vehicles, rather than the traditional listing of $50 million to $100 million companies that can trade at a discount post-listing.

“It's going to be harder for fund managers to raise less than $100 million given this trend, as advisors are looking for liquidity and value for investors.”

Mr Whiddett said brokers had declining interest in smaller IPOs, with a few exceptions.

“While Hamish Nairn of Taylor Collison has been a long-time supporter of fund managers creating small listed investment vehicles that can grow, I expect many brokers will not get involved unless you are looking to raise $200 million to $300 millionplus,” he said.

Pitcher Partners was engaged on four of the biggest IPOs in 2017, including three investment vehicles: VGI Partners Global Investments, which raised $550 million as part of its ASX listing, MCP Master Income Trust, with $516 million, and Plato Income Maximiser, at $325.9 million.

In a strong year for the mid-market, Pitcher Partners’ contribution to the Top 10 IPO list was rounded out with capital goods company Johns Lyng at $220 million.

VGI Partners could be overtaken this year by L1 Capital’s reported goal of raising more than $500 million in a IPO, while NAB is rumoured to be considering an IPO of its wealth management assets that could be worth billions.

Mr Whiddett says the market was still reasonably light on for IPO deals and vendors who are considering equity raising as a prospect for selling their company are likely to take the view that their market has peaked.

“The thing with selling into an IPO as a business owner’s exit strategy is that you will get a better multiple but the valuation is sitting in the price of the shares in the listed company not cash,” he said.

“I think that people have been reluctant to come to market because they are nervous that share prices are more likely to fall than rise.

“If you were going to sell your business in now you are going to get a good price but in two years, when your shares come out of escrow, things might have cooled.”

“If they are getting advice, it is likely to be to prepare your business for IPO, get the business firing and the figures right, but probably don’t come to market yet.”

That left investment vehicles as the hot ticket for IPOs, Mr Whiddett says, which made sense for both investors and financial advisors.

“You have more and more mums and dads managing their own super and looking for where they can put their money. Listed vehicles are easy,” he said.

“It lets people see what they are trading in, and they don’t have to go on to a platform to check out the managed fund options; they can watch the stock on their phone apps.

“The changes in FOFA have made listed investment companies and trusts more attractive for advisors, while the close-ended structure of a listed vehicle can be more effectively managed by fund managers.

“We would expect that after a good year in 2017, we are going to see many more of these listed investment company IPOs in 2018.”

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